If you think that your bad credit score makes it impossible to get approved for an auto loan with low monthly payments, you couldn’t be more wrong.

While it is true that your poor FICO score will make it more difficult, it can be accomplished. There are certain strategies you can employ that will dramatically improve your chances of being approved for a bad credit auto loan with a low APR.


Tips on Keeping Monthly Auto Loan Payments Low


The interest rate directly affects the amount of the monthly payments, and you want it to be as low as possible. Since your credit history is less than perfect, Buy Here Pay Here dealerships are more inclined to offer financing at a high interest rate. This usually translates into higher monthly payments that might be avoidable if you follow these tips.

  1. Don’t rush into signing an auto loan agreement.

One common financial mistake car buyers often make is rushing to purchase a new vehicle.

Just because you think your credit score deserves a low interest rate, doesn’t mean that you will get it.

In your rush you could overlook a few key details, and this could result in higher monthly payments.

Before you start shopping for the best interest rates on a bad credit auto loan, you will want to check your FICO score and history. It is not uncommon for mistakes to appear on a credit report, and these errors will affect the interest rate you get on the car loan. In some cases, the black mark can be the reason your loan request is denied.

It is also important to watch out for advertised low APR rates. These low interest rates are typically reserved for the dealerships “well-qualified” customers with a credit score 700 or above. If you sign the agreement and do not meet the criteria for the low interest rate, you’ll quickly find that your monthly payments are higher than anticipated.

  1. Pay down balances on credit cards.

If you have a poor FICO score and credit utilization rate over 30 percent, your chances of being approved for an auto loan are slim, even if it comes with a high interest rate.

Potential lenders are often nervous approving car loans when the applicant has a subpar credit score, and a large amount of debt on their charge cards.

You will be viewed as a “high risk” borrower, and if you are approved the bad credit car loan will come with costly monthly payments. Paying down the balances on your charge cards will not only lower credit utilization, it can also boost your FICO score. It will take a couple of months for the payments and lower balances to appear on your credit report, but it will be worth it when you are approved for an auto loan with low interest rates.

  1. Pay off credit card debt with under-performing stocks.

Financial experts cannot stress enough the importance of paying off your high interest card credits. Not only are the high interest rates draining any extra cash, they are making it virtually impossible for you to pay off the existing debt.

Since credit utilization makes up 30 percent of your FICO score, it is important that you get your debt ratio down.

Most potential car buyers do not have the extra funds to pay off their credit cards, and produce the often required down payment. This is when you might want to consider selling off any stock that is under performing. The money that you make from the sale can be applied to your credit card debt. This not only lowers your credit utilization to debt ratio, but also shows potential lenders that you can repay a loan.

The record of payments and balances paid off will also give your credit score a slight nudge. For some potential car buyers, it can be enough of a boost to ensure low monthly payments with the auto loan.

  1. Apply for online financing.

Many consumers are taking advantage of a new option when they are applying for an auto loan. Instead of traditional banks, credit unions and Buy Here Pay Here dealerships, potential car buyers are applying for online financing.

The main reason for the growing popularity of online financing is due to how easy it is.

Once you have your information, you fill out the simple online application. The information required online is basically the same as that needed by the dealership. You will need to provide personal information, along with any regarding your finances.

You typically receive an answer from an online lender within a few minutes, and the terms of the loan agreement are clearly written. Online lenders are often able to offer lower monthly payments and interest rates due to their lack of overhead. Some online lenders are also more forgiving when it comes to poor credit scores.

Once you have been approved, the check is typically deposited in your account or held until you are ready to use it at the dealership. Since you already have financing you are ready to drive your new car off the lot, as soon as you pick it out.

  1. Refinance an existing auto loan.

If you have been making your monthly auto loan payments on time and your credit score has improved, it might be time to refinance your car loan. Often this results in lower monthly payments and interest rates.

Not everyone will be approved for refinancing, and the hard check on your credit can hurt your score.

If there are any late payments or if you have held the auto loan for less than 12 months, refinancing probably won’t be a viable option for you.

The best advice is to check your payment history and speak to a qualified financial expert.

  1. Consider automatic monthly payments.
Simply allowing the lender to automatically deduct the monthly loan payments from your bank account can reduce interest rates by .05 percent.

Not only does this ensure that you won’t miss a monthly payment, it also eliminates the need for paper statements. Some Buy Here Pay Here dealerships offer additional savings to entice customers to allow them to automatically deduct the monthly payments.

If you are worried that there won’t be a tangible record of your payments, you can access your account online and print any documents you need.

  1. Apply a larger down payment.

Larger down payments always equal lower interest rates since you are borrowing less. This is especially important when you are trying to keep your bad credit auto loan payments low.

Automobiles depreciate quickly in value, and if the initial loan amount is too high you could find that you owe more than the vehicle is worth.

To avoid being caught in an upside down auto loan, you want to be able to put down at least 20 percent.

If you don’t have the necessary down payment you might still be approved for a bad credit auto loan, but it will come with high monthly payments. Unless a new vehicle is an absolute necessity, it is usually best to wait to sign any bad credit auto loan agreement until you have the down payment.


The Final Word


With the right financial planning, along with some patience, you can get and keep the monthly payments on your bad credit auto loan low.

It can also give you a chance to improve your credit score. The most important tip to remember is to “shop around” and always look for the auto loan with the best interest rate.